805,000 customers exit Netflix

By BENNY EVANGELISTA, SAN FRANCISCO CHRONICLE

Published 8:50 pm, Monday, October 24, 2011

SAN FRANCISCO - Netflix posted a healthy profit gain Monday, but the company's already ailing stock price was massacred in after-hours trading as investors reacted to a greater than expected exodus of subscribers and a forecast for red ink in 2012.

Netflix lost 805,000 subscribers for the quarter after executives fumbled a price increase and a branding change.

Within minutes of the quarterly earnings report's release, the company's stock price fell through the floor and dropped about 27 percent to $85.75 per share in after-hours trading. Netflix had already lost nearly $9 billion in market value since the start of the third quarter in July, when its stock hit a high of $304.79.

Earnings for the quarter were actually up. The Los Gatos, Calif.-based company posted third-quarter net income of $62.5 million, or $1.19 per share, compared with $37.9 million, or 73 cents per share, for the same quarter a year ago. Revenue was nearly $822 million for the quarter, about 49 percent more than the same quarter last year.

In July, the company announced a pricing structure change that meant some customers who paid for both the DVD-by-mail and Internet video streaming services would have to pay up to 60 percent more per month to keep both.

The announcement generated a tidal wave of subscriber cancellations. CEO Reed Hastings has apologized for not properly explaining the changes, but last month opened a new Pandora's box by announcing Netflix was splitting the DVD service into a new unit, with a separate billing system and website under the new name Qwikster.

Three weeks later, the customer furor was so intense Hastings was forced to kill the Qwikster idea.

Netflix isn't planning to raise rates any further, but still isn't planning to offer a discount to lure back subscribers who may have canceled. The company believes DVD-by-mail customers will diminish over the next decade.

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